Bankruptcy Fraud

Bankruptcy Fraud

Bankruptcy fraud arises most often in a case when a Debtor fails to understand how to properly file for bankruptcy and:

  1. Understates or omits his assets or income
  2. Overstates expenses or debt
  3. Transfers property for less than what it is worth
  4. Charges large amounts just prior to filing

 Bankruptcy fraud is rarely criminal unless the debtor intentionally, and boldly lies, or prepares a petition to defraud.    Normally the failure to list property will at most cause a debtor to lose  property.  Debtors often fail to understand that a business they operate, pending inheritance, tax refund, account receivable or  lawsuit are assets that must be reported and cannot be omitted.  If you fail to list property then the court may refuse or deny you the ability to use your exemptions to keep it.  You can’t claim what you don’t have.  If your name is on a checking account with mom then you should claim and explain that account even if the funds belong to mom.

Often a Debtor is tempted to sell property to a friend or relative just prior to filing.   If the sale is for the fair market value and the Debtor is paid the full value of the item there is no problem.   However when the transfer is for less than fair market value the transfer becomes a fraudulent transfer and the trustee may recover the property and sell it.  Since the debtor transferred the property he no longer owns it and again he can’t exempt it.

The most common type of fraud in bankruptcy is charging large amounts just before filing.  If a debtor purchases a $5,000 Rolex watch on his credit card the day before filing then the fraud is obvious.  The Bankruptcy code says that luxury purchases and cash advances are especially suspected and charges over $750 within 90 days can be objected to.  Adversary objections by creditors for normal purchases for necessities such as tires are rare.  Winning an objection for charging normal purchases is seldom.  The punishment for charging on accounts just prior to filing is that the item you charged must be paid for.   

Attorney Nick C. Thompson Louisville Kentucky Bankruptcy Attorney

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